Goldman Sachs upgraded Indian shares to "overweight" from "marketweight", citing strong economic growth prospects, steady domestic mutual fund inflows and a potential supply chain shift from China.

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Indian markets will continue to gain in 2024, supported by steady earnings growth and macroeconomic stability in what would otherwise be a "tricky" period in the Asia Pacific region, Goldman Sachs analysts led by Timothy Moe wrote in a note.

 

"We believe India has the best structural growth prospects in the Asia Pacific region and offers mid-teen earnings growth over the next two years," Moe said in a note.

The Wall Street brokerage expects India's real economic growth to be 6.5% in 2023 and 6.3% in 2024 - the highest among large economies in the region, but slightly below the Indian central bank's target of 6.5% for fiscal 2024.

The benchmark Nifty 50 (.NSEI) jumped about 31% between March 2021 and October 2023, a period during which domestic investors remained net buyers each month, helping tide over sustained sales by foreign investors.

While the domestic participation was a healthy sign, said Goldman, it also noted the market's surge has pushed valuations to an elevated 20 times the next 12 month's expected earnings.

Still, that valuation had some support after earnings growth of 17% in 2023, the brokerage said.

Goldman also raised Thailand to "overweight", while lowering Hong Kong-listed China shares to "marketweight".

The brokerage said concerns over China's economy could lead to countries shifting their supply chains, which could benefit India.

The Nifty 50 has gained roughly 7% in 2023 so far, compared to a 3.75% drop in the MSCI Asia ex-Japan index.